Financial Audit:

Fiscal Years 2016 and 2015 Consolidated Financial Statements of the U.S. Government

GAO-17-283R: Published: Jan 12, 2017. Publicly Released: Jan 12, 2017.

Additional Materials:

Contact:

J. Lawrence Malenich
(202) 512-3406
malenichj@gao.gov

 

Robert F. Dacey
(202) 512-3406
daceyr@gao.gov

 

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What GAO Found

To operate as effectively and efficiently as possible, Congress, the administration, and federal managers must have ready access to reliable and complete financial and performance information—both for individual federal entities and for the federal government as a whole. GAO’s report on the U.S. government’s consolidated financial statements for fiscal years 2016 and 2015 underscores that much work remains to improve federal financial management.

GAO found the following:

  • Certain material weaknesses in internal control over financial reporting and other limitations on the scope of its work resulted in conditions that prevented GAO from expressing an opinion on the accrual-based consolidated financial statements as of and for the fiscal years ended September 30, 2016, and 2015. About 34 percent of the federal government’s reported total assets as of September 30, 2016, and approximately 18 percent of the federal government’s reported net cost for fiscal year 2016 relate to significant federal entities that, as of the date of GAO’s audit report, were unable to issue audited financial statements, were unable to receive audit opinions on the complete set of financial statements, or received a disclaimer of opinion on their fiscal year 2016 financial statements.
  • Significant uncertainties, primarily related to the achievement of projected reductions in Medicare cost growth, prevented GAO from expressing an opinion on the sustainability financial statements, which consist of the 2016 and 2015 Statements of Long-Term Fiscal Projections; the 2016, 2015, 2014, 2013, and 2012 Statements of Social Insurance; and the 2016 and 2015 Statements of Changes in Social Insurance Amounts. About $32.5 trillion, or 70.0 percent, of the reported total present value of future expenditures in excess of future revenue presented in the 2016 Statement of Social Insurance relates to Medicare programs reported in the Department of Health and Human Services’ 2016 Statement of Social Insurance, which received a disclaimer of opinion. A material weakness in internal control also prevented GAO from expressing an opinion on the 2016 and 2015 Statements of Long-Term Fiscal Projections.
  • Material weaknesses resulted in ineffective internal control over financial reporting for fiscal year 2016.
  • Material weaknesses and other scope limitations discussed in the audit report limited GAO’s tests of compliance with selected provisions of applicable laws, regulations, contracts, and grant agreements for fiscal year 2016.

Three major impediments continued to prevent GAO from rendering an opinion on the federal government’s accrual-based consolidated financial statements: (1) serious financial management problems at the Department of Defense (DOD) that prevented its financial statements from being auditable, (2) the federal government’s inability to adequately account for and reconcile intragovernmental activity and balances between federal entities, and (3) the federal government’s ineffective process for preparing the consolidated financial statements. Efforts are under way to resolve these issues, but strong and sustained commitment by DOD and other federal entities, as well as continued leadership by the Department of the Treasury (Treasury) and the Office of Management and Budget (OMB), are necessary to implement needed improvements.

Material weaknesses, including those underlying these three major impediments, have continued to (1) hamper the federal government’s ability to reliably report a significant portion of its assets, liabilities, costs, and other related information; (2) affect the federal government’s ability to reliably measure the full cost, as well as the financial and nonfinancial performance of, certain programs and activities; (3) impair the federal government’s ability to adequately safeguard significant assets and properly record various transactions; and (4) hinder the federal government from having reliable financial information to operate in an efficient and effective manner.

In addition to the three major impediments, GAO identified other material weaknesses. These are the federal government’s inability to (1) determine the full extent to which improper payments occur and reasonably assure that appropriate actions are taken to reduce them, (2) identify and resolve information security control deficiencies and manage information security risks on an ongoing basis, and (3) effectively manage its tax collection activities.

The comprehensive long-term fiscal projections presented in the Statement of Long-Term Fiscal Projections and related information show that absent policy changes, the federal government continues to face an unsustainable long-term fiscal path. GAO plans to issue a report outlining its perspectives on the fiscal health of the federal government.

Why GAO Did This Study

The Secretary of the Treasury, in coordination with the Director of OMB, is required to annually submit audited financial statements for the U.S. government to the President and Congress. GAO is required to audit these statements. The Government Management Reform Act of 1994 has required such reporting, covering the executive branch of government, beginning with financial statements prepared for fiscal year 1997. Treasury and OMB have elected to include certain financial information on the legislative and judicial branches in the consolidated financial statements as well.

What GAO Recommends

Based on prior financial statement audits, GAO made numerous recommendations to Treasury and OMB to address internal control deficiencies. GAO will continue to monitor and will report separately on Treasury’s and OMB’s progress in implementing prior recommendations that remain open. Consistent with past practice, GAO will also be separately reporting on internal control deficiencies in processes used to prepare the consolidated financial statements and providing Treasury and OMB, as appropriate, recommendations for corrective actions to address them.

In commenting on a draft of this report, Treasury and OMB officials expressed their continuing commitment to addressing the problems this report outlines.

For more information, contact J. Lawrence Malenich at (202) 512-3406 or malenichj@gao.gov or Robert F. Dacey at (202) 512-3406 or daceyr@gao.gov.

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